Law Commons^™

The Economics Of Payment Cards, Marc Rysman, Julian Wright

Marc Rysman

We review the law and economics of payment cards. We focus on the recent economics literature on two-sided markets, and discuss the antitrust and regulatory treatment of interchange fees, card surcharging, and other issues.

Summary Of The 2010 Amendments To Chapter 9 Of The Texas Uniform Commercial Code, Allen J. Dickey

Allen J Dickey

The American Law Institute and the Uniform Law Commission (ULC) approved certain amendments to Article 9 of the Uniform Commercial Code in 2010. The ULC Amendments were considered and approved, with some non-uniform changes, by Texas in 2011 with a July 1, 2013 effective date. The three most noteworthy ULC amendments impact: (i) the required name of an individual on a financing statement, (ii) the perfection of collateral following the debtor’s relocation to a new jurisdiction, and (iii) collateral acquired by a new debtor. This paper provides a summary of the three most noteworthy changes to Article 9 of the …

Between Law And Markets: Is There A Role For Culture And Ethics In Financial Regulation, Robert David, Daniel Awrey, |William Blair

robert david

The limits of markets as mechanisms for constraining socially suboptimal behavior are well documented. Simultaneously, conventional approaches toward the law and regulation are often crude and ineffective mechanisms for containing the social costs of market failure. So where do we turn when both law and markets fail to live up to their social promise? Two possible answers are culture and ethics. In theory, both can help constrain socially undesirable behavior in the vacuum between law and markets. In practice, however, both exhibit manifest shortcomings.

To many, this analysis may portend the end of the story. From our perspective, however, it …

How Statistical Sampling Can Solve The Conundrum Of Compensation Disclosures Under Dodd-Frank, Michael Ohlrogge

Michael Ohlrogge

One of the more controversial measures of the Dodd-Frank bill is its requirement that companies report the ratio of their CEO’s compensation to that of their median employee. Critics of this provision have claimed that for large companies with employees and subsidiaries throughout the world, compliance with this measure alone could cost millions of dollars a year, due to the difficulties in identifying the median employee. This paper demonstrates that the Securities and Exchange Commission, which is charged with implementing this provision, has the latitude to direct companies to calculate the figure using a statistical sampling procedure which would greatly …

How Government Guarantees In Housing Finance Promote Stability, David Min

David Min

In the aftermath of the financial crisis, major reforms of the U.S. housing finance system are likely. One of the key issues facing policy makers in this area is whether and to what extent the federal government should maintain its current role in the residential mortgage markets. Since the New Deal, the federal government has guaranteed the primary sources of housing finance in the United States—bank and thrift deposits, and the obligations of the mortgage securitization conduits Fannie Mae, Freddie Mac, and Ginnie Mae.

The prevailing view of government guarantees is that they increase financial instability because they encourage excessive …

How Government Guarantees In Housing Finance Promote Stability, David Min

David Min

In the aftermath of the financial crisis, major reforms of the U.S. housing finance system are likely. One of the key issues facing policy makers in this area is whether and to what extent the federal government should maintain its current role in the residential mortgage markets. Since the New Deal, the federal government has guaranteed the primary sources of housing finance in the United States—bank and thrift deposits, and the obligations of the mortgage securitization conduits Fannie Mae, Freddie Mac, and Ginnie Mae.

The prevailing view of government guarantees is that they increase financial instability because they encourage excessive …

Credit Default Swaps And Insider Trading, Douglas B. Levene

Douglas B Levene

In the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress clarified that the insider trading regime of Rule 10b-5 applies to trading in credit default swaps. In so doing, Congress implicitly assumed without analysis that the equities securities markets and the credit default swap market are the same and should be subject to the same rules.

This paper is the first to question that assumption and to consider whether as a normative matter credit default swaps should be subject to Rule 10b-5. Through a rigorous analysis of the differences between the two markets and the policies underlying …

Building A Better America: Tax Expenditure Reform And The Case Of State And Local Government Bonds And Build America Bonds, Blaine G. Saito

Blaine G. Saito

Currently most subnational government borrowing in the United States is done via tax-exempt muni bonds. But they are riddled with problems. They are inefficient at delivering the subsidy, and they create economic distortions of investment choices. They are inequitable, and they have significant democratic deficiencies. Direct payment Build America Bonds (BABs) provide an alternative, as they directly pay a cash subsidy to a subnational government. While there are simple technical problems that can easily be remedied, BABs face significant political hurdles that will prevent the permanence of the program. Policy entrepreneurship is a way forward. The piece also discusses how …

¬Reverse Regulatory Arbitrage: An Auction Approach To Regulatory Assignments, Todd Henderson, Fred Tung

Todd Henderson

In the years before the Financial Crisis, banks got to pick their regulators, engaging in a form of regulatory arbitrage that we now know was a race to the bottom. We propose to turn the tables on the banks by allowing regulators, specifically, bank examiners, to choose the banks they regulate. We call this “reverse regulatory arbitrage,” and we think it can help improve regulatory outcomes. Building on our prior work that proposes to pay bank examiners for performance—by giving them financial incentives to avoid bank failures—we argue that bank supervisory assignments should be set through an auction among examiners. …

On The Theoretical Foundations For Regulating Financial Markets, Katharina Pistor

Katharina Pistor

How we think about financial markets determines how we regulate them. Since the 1970s modern finance theory has shaped how we think about and regulate financial markets. It is based on the notion that markets are or can be made (more) efficient. Financial markets have been deregulated when they were thought to achieve efficient outcomes on their own; and regulation was designed to lend crutches to them when it appeared that they needed support. While modern finance theory has suffered some setbacks in the aftermath of the global crisis, defenders hold that improving market efficiency should still be the overriding …

Legal Applications Of Modern Finance, Matthew E. Cavanaugh Mba Cpa Esq.

Matthew E. Cavanaugh MBA CPA Esq.

While scholars and practitioners have applied economics to law successfully for decades, there has been almost no similar application of modern finance. Courts have used the central concept of classical finance, time value of money, for many years, but their use is still unsophisticated.

This article details two ways to apply modern finance to law. This article first describes a method of improving courts’ time value of money calculations, by using a systematically complete four factor analysis to determine the appropriate discount rate. This article then describes a method of calculating future damages that uses market price of risk, based …

Ten Dollars For 10,736 Mortgages: Should Nominal Consideration Supersede Real Property Recording Law, John P. Hunt

John P Hunt

Our review of mortgage securitization transactions from 2005 to 2007 suggests that many intermediate mortgage transfers structured as promissory note sales involved the exchange of only nominal or other dubious consideration. The Uniform Commercial Code requires consideration “sufficient to support a simple contract” as a prerequisite for treatment of a transaction as a promissory note sale. Treatment as a sale triggers the Code’s “mortgage follows the note” provisions, which may protect transactions from claims that the mortgages involved are unenforceable, are vulnerable to competing claimants, or were never transferred in the first place. Mortgage securitization transactions are potentially exposed to …

Moral Hazard Within The Greek Economic Crisis: An Analysis Of European Union Law Effectiveness In Dealing With The Greek Economic Crisis, Juan Castro, Juan Castro

Juan Castro

In this paper I will present the historical background of the current Greek economic crisis. I will delve into the causes of the fiscal and current-account deficits since Greece’s euro entry in 2001. In addition to the economic and financial information provided, I will also present cultural aspects and differences between Greece and its surrounding neighbors, primarily Germany, and how moral hazard has exacerbated the conflict. Further I will discuss the legality of the countermeasures and solutions presented and how these encroach upon European Union law treaties. Lastly I will conclude that in order for Greece and Germany to stabilize …

Dodd-Frank's Inappropriate Treatment Of Insurance Companies: A 'Sifi' Situtation, Mark M. Makhail

Mark M Makhail

Abstract available upon request.

Financial Counterintelligence: How Changes To The U.S. Anti-Money Laundering Regime Can Assist U.S. Counterintelligence Efforts, Mark Skerry

Mark Skerry

The United States faces an onslaught of offensive foreign intelligence operations, with tactics ranging from Soviet era-style spies clandestinely inserted into its communities to modern-day economic espionage conducted by businesses on behalf of foreign powers. This article proposes a novel weapon to combat this rising threat: leverage the existing U.S. Anti-Money Laundering (AML) regime to assist counterintelligence efforts. The AML laws and regulations already require financial institutions to investigate clients’ backgrounds, monitor financial activity, and report suspicious transactions to federal law enforcement. If these financial institutions also were to report transactions that suggest foreign intelligence directly to U.S. counterintelligence elements, …

How Tax Haven Entities Falter In U.S. Bankruptcy Courts, Joshua A. Nemser

Joshua A Nemser

This paper discusses the paradox facing the thousands of hedge funds incorporated in offshore tax havens such as Bermuda and the Cayman Islands. When placed in insolvency proceedings in the jurisdiction of their incorporation, several of these funds have been denied access to United States bankruptcy courts based on the principle of nonrecognition. Finding that the activities and assets of these funds are primarily located in the United States, such courts have refused to acknowledge the foreign proceedings. Without recognition, United States courts grant practically no assistance to the foreign proceeding. While those same courts invite the liquidators of these …

The Taxonomy Of Global Securities: Is The U. S. Definition Of A Security Too Broad?, Frederick H. C. Mazando

Frederick H. C. Mazando

This Article compares the scope of the notoriously broad U.S. federal securities laws definitions of a “security” with its counterparts in four major global financial jurisdictions to illustrate the nature and extent of the disparate global securities definitions that profoundly shape international financial rules and potential areas of harmonizing global securities definitions. The global trade in securities developed and grew exponentially in the last three decades without a securities treaty or effective global securities rules largely because there is no global consensus on what securities are or how best to regulate them. The disparate global securities definitions are sine qua …

Criminal Affirmance: Going Beyond The Deterrence Paradigm To Examine The Social Meaning Of Declining Prosecution Of Elite Crime, Mary K. Ramirez

mary k ramirez

Recent financial scandals and the relative paucity of criminal prosecutions against elite actors that benefitted from the crisis in response suggest a new reality in the criminal law system: some wrongful actors appear to be above the law and immune from criminal prosecution. As such, the criminal prosecutorial system affirms much of the wrongdoing giving rise to the crisis. This leaves the same elites undisturbed at the apex of the financial sector, and creates perverse incentives for any successors. Their incumbency in power results in massive deadweight losses due to the distorted incentives they now face. Further, this undermines the …

Adjusting Unconscionability As An Alternative To The "'Fair Contracts' Approval Mechanism", Daniel J. Cohn

Daniel J. Cohn

Courts are in the habit of enforcing contracts. Courts enforce contracts governing consumer transactions even though empirical data show consumers do not read those terms. The big question is, “Should they?” One legal scholar, Shmuel I. Becher, has answered that question with a resounding “yes, but differently.” Becher proposes a creative and comprehensive third-party approval system for consumer contracts, known as the “‘Fair Contracts’ Approval Mechanism.” In this Paper, I identify several fatal problems associated with Becher’s proposed system, and—given those problems—propose an alternative method of protecting consumers. Specifically, I suggest adjusting the unconscionability doctrine to include a sliding-scale analysis …

The Waters Are Rising! Why Isn’T My Tax Basis Sinking?: Why Coastal Land Should Be A Depreciable Asset In Light Of Global Warming And The Rise In Sea Level, Jason P. Oppenheim

Jason P Oppenheim

Depreciation deductions are the Internal Revenue Code’s method of allowing taxpayers to take deductions on long-term investments. Unlike normal deductions, depreciation requires the taxpayer to apportion the expense over the life of the asset. While most assets used for the production of income may be depreciated, the Internal Revenue Service and courts have never allowed land to be depreciated. The treatment of land as a non-depreciable asset is deeply rooted in the idea that it does not have a useful life—it lasts forever. However, the rate of global warming has increased rapidly over the past fifty years and is expected …

Whatever Happened To The Prudent Man? The Case For Limiting The Influence Of Proxy Advisors Through Fiduciary Duty Law, Jodi Slaght

Jodi Slaght

Proxy advisors are third-party consultants that charge investment advisers for advice about specific companies, and provide “for” or “against” recommendations on shareholder voting issues. Currently, proxy advisors are not regulated by the SEC or any other government agency. At least one commentator has noted that the influence of proxy advisors is so substantial that it “cannot be overstated.” Additionally, proxy advisors are not required to disclose the methodologies used to render their recommendations.

The influence and lack of accountability of proxy advisors has become a cause for concern. In response, the SEC issued a concept release in 2010 addressing possible …

Barriers To Market Discipline: A Comparative Study Of Regulatory Reforms, Vincent Di Lorenzo

Vincent Di Lorenzo

Barriers to Market Discipline: A Comparative Study of Mortgage Market Reforms This article explores regulatory reforms in the U.S. and U.K. in response to the recent mortgage market crisis. These reform efforts serve as case studies for evaluation of necessary reforms being considered in many nations. Two issues are examined. First, the article explores the extent to which regulatory bodies have recognized behavioral barriers to market discipline on the part of both consumers and industry actors. The academic literature has long identified such barriers, but recognition by government regulators has lagged. Second the article examines the varied response in the …

Assessing The Costs & Benefits Of Credit Card Rewards: A Response To Who Gains And Who Loses From Credit Card Payments? Theory And Calibrations, Steven Semeraro

Steven Semeraro

Abstract: Assessing the Costs & Benefits of Credit Card Rewards: A Response to Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations For two decades, economic and legal academics have speculated about the impact of the fees that merchants pay for credit card acceptance. Since all customers pay the same price, the theory goes, everyone pays for the benefits that go only to credit card users. A recent Federal Reserve Bank of Boston (FRBB) policy paper written by economists Scott Schuh, Oz Shy, and Joanna Stavins entitled Who Gains and Who Loses from Credit Card Payments? Theory …

As Greece Goes, So Goes The E.U.: Defending Europe With A Sovereign Debt Restructuring Framework, Elizabeth H. Dahill

Elizabeth H Dahill

This Article discusses the current sovereign debt crisis in Europe and proposes that European policymakers adopt a European Debt Restructuring Framework [EDRF] modeled after the IMF’s Sovereign Debt Restructuring Mechanism [SDRM], sovereign bond contracts’ Collective Action Clauses [CAC] and the U.S Bankruptcy Code’s Chapter 9.

Extending The Eu Financial Regulatory Framework To Aifm, Credi Derivatives, And Short Selling, Enrico Baffi, Dino Lattuca, Paolo Santella

enrico baffi

The European Commission followed the impulse from G20 for a coordinate response to the financial crisis by adopting a proposal for a Directive to mandate the clearing of suitable classes of OTC derivatives (the so-called EMIR proposal) and a proposal on alternative investment funds (AIFMD). However, the Commission further enlarged the regulatory perimeter by including in the AIFMD proposal also private equity funds and by adopting a proposal for Regulation on short selling. In particular, the EMIR proposal, currently (March 2011) under discussion at the Council and the European Parliament, follows closely the multilateral regulatory efforts by providing mandatory clearing …

The Devil Is In The Details: Is Payday Lending A Godsend, A Necessary Evil, Or An Enticement Into Financial Hell?, Ron Elwood

Ron Elwood

Payday lending remains a highly controversial subject. The debate about its merits of is polarized. Proponents focus solely on the payday loan as the only source of helpful credit to a segment of consumers excluded from mainstream lenders. Opponents focus solely on the adverse consequences so many customers experience after using payday lenders. Neither side acknowledges arguments, however legitimate, the other makes. Demand for small-amount, short-term loans is undeniable. Absent from most discussions of the subject is an exhaustive comparison and analysis of the myriad of rationales industry attackers and defenders use to justify their positions and conclusions. A deconstruction …

How The Poor Got Cut Out Of Banking, Mehrsa Baradaran

Mehrsa Baradaran

The United States currently has two banking systems—one for the rich, one for the poor. It wasn’t always this way. Throughout U.S. history, the government has enlisted certain banking institutions to serve the needs of the poor and offer low cost credit to enable low-income Americans to escape poverty. Credit unions, savings and loans and Morris Banks are three prominent examples of government-supported institutions with a specific focus of helping the poor. Unfortunately, these institutions are no longer fulfilling their missions and high-cost, usurious, and sometimes predatory check-cashers and payday lenders have quickly filled the void. These fringe banks do …

American Sovereign Wealth, Paul Rose

Paul Rose

The rise of sovereign wealth funds signals a shift in the balance of economic and financial power in the world, with fast-rising powers creating sovereign wealth funds to invest billions in relatively new-found wealth. Discussions and analyses of sovereign wealth thus tend to focus on international relations and politics. But those who study the history of sovereign wealth funds recognize that many SWFs have existed for decades, and that some of these older SWFs are owned by U.S. states, thus also implicating federal relations and domestic politics. A great deal of research has focused on the international aspects of new, …

Competition And Crisis In Mortgage Securitization, Michael N. Simkovic

Michael N Simkovic

U.S. policymakers often treat market competition as a panacea. However, in the case of mortgage securitization, policymakers’ faith in competition is misplaced. Competitive mortgage securitization has been tried three times in U.S. history - during the 1880s, the 1920s, and the 2000s - and every time it has failed. Most recently, competition between mortgage securitizers led to a race to the bottom on mortgage underwriting standards that ended in the late 2000s financial crisis. This article provides original evidence that when competition was less intense and securitizers had more market power, securitizers acted to monitor mortgage originators and to maintain …

The Corporate Gatekeeper In Ethical Perspective, Christopher T. Hines

Christopher T Hines

The fallout from the financial crisis continues to inform the development of corporate and securities law, and the new regulatory landscape for economic activity within the United States is beginning to take form. This evolutionary process, however, has been anything but stable or certain. As might be expected, in concert with such momentous change in law and policy, recriminations for and associated investigations of past activity continue to affect competent regulators as well as market participants. Nevertheless, while many of the underlying causes of the financial crisis are now better understood by both policy makers and scholars, the question remains—given …